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3/25/2013 @ 11:41AM5,903 views

BlackBerry's Grim Prospects: Z10 Launch Disappoints

The launch of the BlackBerry (BBRY) Z10 didn’t go as well as some were expecting. That has caused several Wall Street analysts to rethink their positions, with one research firm even downgrading the name.

Goldman Sachs analyst Simona Jankowski removed the Waterloo, Ontario-based technology firm from Goldman’s Americas Buy List due to a disappointing launch at AT&T (T); the overall consensus had moved higher on BlackBerry since Goldman added the company to the Buy List in late November. Since the Nov. 29 add, shares are up 34%, compared with a 10% climb in the S&P 500. Jankowski downgraded the stock to “neutral,” and lowered the price target to $17 from $19.

The concern has been that BlackBerry 10 is going up against smartphone behemoths like Apple (AAPL) with its iPhone, Samsung with its Galaxy S series, and Google (GOOG) with the Nexus. The chances of outright success are limited.

“We now assign a 20% probability of success for BB10, down from 30% previously, as the disappointing launch of the Z10 at AT&T reduces our confidence that sell-through of the BB10 will be successful in the important US market,” Jankowski wrote in her report.

BlackBerry has been losing market share for some time now, owning 3.2% in the fourth quarter, according to research firm IDC. The hope is that BlackBerry 10 will turn that around, but a weak domestic launch makes those prospects a bit harder.

Citi analyst Jim Suva, who rates BlackBerry “sell,” noted his checks revealed “shockingly low support by AT&T with extremely limited signage & more signage for Samsung & Apple products,” as well as poor product placement, a lack of knowledge on the device, and a surprising low amount of inventory.

Less than 5% of AT&T stores around the country sold out on initial stock of the BlackBerry Z10, with most stores getting a dozen or two smartphones. “In summary, the initial Z10 in the US is a disappointment and a stark contrast to the successful Europe & Canada launches,” Suva wrote. He has a $6 price target on BlackBerry shares.

The BlackBerry 10 operating system, and the Z10 smartphone, are supposed to change the minds of the American consumer. Over the weekend, BlackBerry had several commercials run during the NCAA tournament, as the company hoped to capture back the mindshare it lost over the years. Judging by the opening weekend response, that didn’t go as planned.

Perhaps it’s the lack of support for the platform from developers, with no apps from Instagram and Netflix (NFLX), or the weak battery performance (something I questioned last week), but the launch is not going well. Even the strong launches in Canada and Europe are now being undermined, Suva noted, with customers returning the device, most notably for the lack of apps, and carriers are moving the Z10 to less favorable positions in their stores.

UBS analyst Amitabh Passi believes that although the near-term could be good for BlackBerry, the longer-term earnings outlook is still challenging. He cited channel fill-in, pent-up demand and a bullish tone from BlackBerry’s management, including CEO Thorsten Heins, but added the stock is likely to remain volatile given the service weakness, competition, and “an un-compelling multi-screen, cloud, and content strategy.” Passi rates shares “neutral” with a $13 price target.

The U.S. is the key market for any smartphone manufacturer, particularly one that’s trying to compete in an increasingly crowded market place, such as BlackBerry. The company has a long road ahead of it. Starting off with such a poor reception in the most important market is certainly not going to make BlackBerry’s prospects of gaining market share any better.

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